Episode 4: Setting your salary with Adam Theobald

How much are you worth? It’s a big question for entrepreneurs and small business owners who must decide, and often limit their income. Adam Theobald, Founder and CEO at Beat the Q offers sage advice on this week’s show, admitting it’s been tough to earn less than your market rate as a startup business.

Xero In hosts Valerie Khoo and Rob Stone talk with Adam about his lessons starting a company that lets consumers pre-order and pay for cafe purchases. They cover everything from bootstrapping an idea, to developing a clear business strategy – and most importantly – dealing with the issue of how much money is enough. It’s a must-listen for aspiring entrepreneurs and established small business owners alike.

RS: That’s right. So Adam founded Beat the Q. An amazing app where you can pre-order your coffee and he recently, just last year, merged his business with Posse. So I think using game theory in any negotiation is very valuable and I think a lot of people just do it intuitively as well.

VK: But this puts some science behind it.

RS: That’s right.

VK: But we’ll have more on Adam later because first, let’s chat a little bit more about payroll and how much to pay yourself when you’re in your business. What are your thoughts on this Rob?

RS: Well it’s an interesting one and I don’t think anyone really gets it right. In Adam’s case, very unique environment. He started his own business, he had the challenges of working out what to pay himself and then merging into a larger entity and having more capital behind himself as well. Do you pay yourself a different rate?

VK: Yeah. There is various schools of thought on this because there are some people who just say you have to pay yourself first because you know, you’re the one with the mortgage, you’re the one who needs to put bread on the table. But there are some people who say you need to have a lot of skin in the game. You need to have that pain on your face, you need to make sure that the business is an ongoing venture so maybe you need to delay paying yourself. It’s a delicate balance I think.

RS: It is. And particularly when you marry it up with passion. You know, most people that are passionate would do it regardless of what they’re being paid. But at the same time, you do have creditors, family and other commitments that you need to make.

VK: I guess the beauty about being an entrepreneur is ultimately if the business is going well, you can decide how much you want to pay yourself and that’s fantastic.

Interlude

VK: But now we’ve got Adam joining us in the studio today. How are you Adam?

AT: I’m great. Thanks for having me.

VK: Now let’s great straight into it. I understand that the idea for Beat the Q came to you during a Jack Johnson concert?

AT: It did. It was a crazy moment actually and me as the nominated hungry person, in the bunch of people at the concert went and stood in a queue for 45 minutes to get our burgers and we got to the front of that queue and this group of people emerged in front of us and it was kind of really really frustrating at the time and I remember saying to my mate, “look I’ve got an idea” and I went into negotiations with this group and I said, “girls, really frustrated about this, how about you let us in front of you and we won’t say another word” and they had a huddle, they agreed to the terms. I got to the front and I ordered 25 chicken burgers and I remember, it was this really funny moment because I remember the guy serving me, looking at me, as if to say, is this guy crazy? And he had this moment where he said, “Right on! Yeah you can.” And he got a box and he gave me these chicken burgers and it was kind of cool because he looked at me and he saw an opportunity in one transaction to serve lots of people. He saw the efficiency, he saw the frustration on my face and everyone was a winner. So we – we took that box of chicken burgers and we sold it to everyone behind the group of girls in the line and…

VK: Smart.

AT: Slightly spiteful. But it was a good moment.

VK: And when was that? How many years ago?

AT: So it was four years ago now.

VK: So since then, Beat the Q has grown considerably. We’ve heard about it from so many different people. Can you give us an idea of the size or the growth or the number of users?

AT: Yeah. Sure. Absolutely. We get asked this a bit. So it was a really cool moment recently when I started looking at just how many transactions we’d processed and we did this cool little thing where we put all the coffee cups end to end on top of each other and we found that we actually went to the international space station and back.

VK: Oh my God.

AT: And so we’ve done some cool little numbers. We’ve saved over a hundred years of life for our customers. The busy customer saves over a week of productivity every single year. So it’s really starting to add up, what was a really simple idea is really starting to add up.

RS: That’s amazing. And has that been a consistent growth or are you just seeing it starting to spike in the last couple of years?

AT: It’s funny. I often use the analogy of waves and swimming in between the sets of waves. As an entrepreneur, you swim really hard in all manner of directions. You often get caught in a rip or you swim sideways, you swim forwards, you swim back. But the reality is there’s this huge market power that you’re really beholden to and I use that analogy because, you know, we’ve done a lot of work, we’ve worked very hard, we’ve seen lots of growth, we’ve seen periods where it’s stopped but recently, it’s really bubbling. The market is demanding a mobile ordering solution out there and we’re very happy to be giving it to them,

RS: Fantastic. And what was your courage? I mean, I’ve been to many concerts myself and I’ve had some great ideas, have to say that none of them have come to reality. How did you turn it into something that was, you know, tangible and an actual entity?

AT: Yeah. So I think for me I’ve always been quite technical, quite commercial. I’ve always been a bit of an entrepreneur at heart. I got the bug when working at a start, a listed start up called Freshtel and I saw this amazing energy and this spirit of entrepreneurship and this – this desire to create something big and new and that’s really where I got the bug. And I suppose from then, it was just a – a fait accompli. It was about when the right opportunity presented itself and as you’ve just heard, it was actually at a Jack Johnson concert which is a little odd.

VK: Now this differs greatly from your previous career as an investment banker. What skills have you brought over into the start-up world?

AT: Yeah. That’s a really good question. So I think from my perspective, I went into investment banking because I was really passionate about covering tech stocks. So I worked for a business that was specifically covering the buyer technology sector. That was a really interesting learning case for me. Especially around dealing with investors, raising money, the pitfalls of innovation, the cost of innovation. So I think that was important. Salesmanship. So being able to sell in a start-up’s important, you’re selling to everyone. So I think I took some salesmanship out of that. But I just took a – a hunger. You know, it was another example of seeing a lot of great tech companies and just getting this, you know, this burning desire to build something I think really started back then.

RS: And to go out and sell to the café owners out there but then also to get people to use the app. How did you split up your time in between pounding the pavement and, you know, building up this clientele and getting people to – to use it? What’s your secret to success?

AT: Yeah. Look, no easy answer to that one. Make more time by sleeping less is the first one…

RS: Drink more coffee.

AT: Yeah. Drink more coffee. I was lucky I was fuelled in an industry which actually gave me energy. No, look, from my perspective you know, Beat the Q is a classic dual market problem. We have merchants, we have consumers and getting them to work in harmony is no easy exercise. I’ve been lucky to be mentored and advised by some brilliant people along the way that have helped me navigate that challenge. But it’s something we still face today. You know, we’re seeing some great growth and pulling the levers on each side of that network at the right time is a constant battle.

RS: And how did those mentors come into your life in the first place? Was it organic or did you actually go out and – and seek them?

AT: Never sought them. Always came out of interesting conversations through intermediaries. The two that I’ll mention are Greg Wilkinson and James Spenceley. Greg Wilkinson founded Reckon. I met him through a friend and he’s become a really important mentor, friend and advisor. Ironically, he lives literally 50 metres from my home and that was kind of a cool irony to our meeting. But also James Spenceley. I met him in pitching for capital. James Spenceley founded and is the CEO of Vocus Communications. A huge ASX listed company. He’s the nice, most, the nicest successful person I’ve ever met. And to that end, I met him in pitching for capital and he invested and we became mates. So I think it’s incidental. I don’t ever deliberately go looking for mentors but often when it happens, it just happens. It clicks.

RS: And it’s been very successful. You’ve undertaken a merger. When you started, did you have an exit strategy in place at the outset? Or was it, I’m going to see how far this goes and if something opportunistic comes along, I’ll grab it.

AT Yeah. It’s a really good question. I think everyone prescribes the idea of knowing your exit beforehand and I’m a little bit sceptical on that strategy. I think that if your focus is building value and you always keep your options open, that’s where success lies. I can say that because I haven’t exited my business yet. But I think from – from my perspective, you need to think about trajectories and exits are never a binary event. They’ll always be lots of different things that pop up and you need to ready for many of them. So you need to think about your short, medium and long term trajectory, how hard you push where and just never be fixed on what that exit looks like because you can’t get stuck.

RS: And like any good plan, once you actually go into war, it’s out the window. Tell us about some of the challenges or turning points where you’ve had to move fast and be nimble?

AT: Yeah. Sure. So one of the – one of the times that it was quite tough in our business was we had some financing, we had some investment from a third party through funding issues on their side. It fell through late in the piece. We were left high and dry. We needed to scramble. But I think like that ability to scramble is absolutely at the core of what entrepreneurship’s about. Yes, we want to put structure in. Yes, we want to be strategic. Yes, we want to have nice documents that point to a very clear plan but the reality is when things go down, you got to scramble. And I think – I think that ability to scramble is an important lesson I’ve taken out of those bits of hardship.

RS: And can you convey that to your team as well? I mean, how hard is it to impart that passion as the founder entrepreneur and then spread that kind of then urgency?

AT: Yeah. I mean, I think it’s – it’s very cultural…

RS: Okay.

AT: Like I mean, you know, it’s very hard for it not to spread because you know, as an entrepreneur in a business, you’re naturally imparting this energy all the time. I think that’s a balance though right. Like the balance of urgency along with stability is something that we need to constantly focus on as we get much bigger. You know, 12 months ago, we were six people in a room. Now, we’re close to 20.

RS: Wow.

VK: Wow.

AT: So and in such an interesting change for me right, to see that business grow over that period so I’m still learning about how to manage that but – but look, it’s a lot of fun.

VK: What have been your – been your biggest teething problems with that kind of level of growth, that pace of growth?

AT: Look, I’ll tell you in six months’ time. I mean I think the truth is – the truth is, it’s going really well. We’re lucky in that we’ve got an awesome group of people. I’m also lucky to have an awesome cofounder in Rebecca Campbell who - who was the CEO of – of Posse and so I’m learning a lot from her. I hope she is from me. But look, I think the reality is that we’ve got a really really good crew of people and without that, we’d be in a lot of trouble and with that, we’re going to succeed.

VK: So you made reference to Rebecca Campbell. Tell us about the merger with Posse?

AT: Yeah. So I was approached by Rebecca and it was interesting. She had a vision around one app and a vision around, there’s a lot of noise in our lives at the moment around apps and there are a lot of apps that are being uninstalled and we’re seeing in general, there’s a lower number of apps on everyone’s devices. And – and she saw the opportunity to take this to mainstream by simplifying things. By keeping it in one app, one experience, keeping it simple. From a corporate perspective, there was this great synergy of what Posse had done. So Posse’s this really exciting social discovery platform that is in 60,000 venues globally. Beat the Q has this great traction of transacting merchant experiences and consumer experiences but in a much smaller number of merchants.

So there was this really cool merchant, sorry, scale meets commercial’s proposition that became clear quite quickly and that was something we pounced on. It was actually a theme that I tapped onto previously with eCoffeeCard. I kind of came up against eCoffeeCard in our merchants and my view was that in time as the market matured, you wouldn’t have multiple service providers into these customers. And so I bought that business for that reason. So it was a theme that I believed in already, this consolidation. And yeah, she’s impressive. So we did it.

RS: So I mean, that brings up a lot of questions. First off. Loyalty. Can it be manufactured or is it hard won?

AT: Yeah. Really good question. One of the books I love is a book called, Loyalty 3.0 and that talks about exactly that and it’s the next generation of loyalty and it’s the conversation around, is loyalty anything but a discount – discount in the current form? Your stamp card, is it – is it really generating loyalty or if someone opens across the road with the same price with a better product, are they going to go across the road? And to your question, I think that the market is really evolving how it thinks about loyalty at the moment. Loyalty in our opinion is about creating fantastic experiences. It’s about giving a personalised customer experience. It’s about you as a small business knowing the name of that customer before they walk in the door. Knowing that they like a specific type of bacon and egg roll or sauce. You can tell what’s on my mind. [Laughter] But I think – I think loyalty is, as the market and consumers are becoming more finical, more time poor and more conscious of these decisions, I think loyalty is shifting into a place where it’s about the experience and not the offer.

RS: And let’s unpack that. So you’ve got the merchant’s experience, you’ve got the customer’s experience. For you, how do you define it? You know, you walk away and say that was a great experience and what is customer experience to you?

AT: I think the way I define customer’s experience normally is that you know when it’s awesome, right? Everyone has an app that they think is the best app they own. They can describe it elegantly, they talk about it passionately and it can be any number of things that create that. I think that from my perspective, simplicity is an important part of good customer experience now. When I use a service now, I often, it’s almost like a start at 10 being the optimistic entrepreneur that I am and I start crossing things off whenever I hit points of friction. So whenever I get confused or whenever I don’t know what to do next, these are the things that take away from the simplicity and take away from an elegant solution. So getting pretty deep there but I suppose for me, from my point of view, elegant, simple customer experience is what drives me.

RS: And going back to knowing your customer and what they want pre-emptively. That information is just built up over time or have you got an access to an external repository?

AT: No. So it’s a good question. We currently only use our own data and there are all sorts of cool things that we can do in the future around bringing interesting insights to data to the merchant. It’s something that we’re very focused on. But from - from my perspective, there’s some really cool data in what we do and you know, using that to not be spooky to the customer because that’s important but to give them a more personalised experience when they next walk into a store, that’s really really cool and something that we’re very focused on.

RS: And to give you a Dorothy Dix, is there such a thing as a second class customer?

AT: Absolutely not. So I think, I think that’s one of the very important parts. One of my biggest lessons from Beat the Q is that when I started the business, we were more customer focused, consumer focused I should say. We were more about the coffee drinker and we wanted to provide a simple, functional, good service to the merchant but our energy was spent more, product wise, on the consumer and at face value, that’s seemed right but what has happened over the last four years, four to eight years from my perspective, is people are becoming more discerning around customer experiences and what that means is that we can no longer treat different business types, let’s call it, merchants as second class citizens. Everyone is a consumer, everyone uses Uber, everyone sees the gold standard in how they interact with technology now and therefore, everyone’s experiences is getting, sorry, everyone’s expectation is getting higher and higher.

RS: That was be pretty hard for you to be able then prioritise your time then?

AT: I mean, you see these great solutions scale into the market and see mass adoptions and real success. It’s because they keep it simple. Keeping it simple means you can affect people more people.

VK: So I understand that Beat the Q kind of gave birth to another business right? Can you tell us a bit about that?

AT: Yeah. It did. So about 12 months ago now, we – we had some interesting insight to Beat the Q which was around, we were dealing mostly with the journey between the retailer and the consumer and we were all about increasing efficiency, providing great experiences and making that transaction more efficient for everyone. But what we, the feedback we kept getting from our outlets and the different channel partners we spoke to was that same problem exists between the retailer and their many wholesalers. Ordermentum was then born. So Ordermentum is a platform that allows merchants, retailers to order their perishable items, their monthly, sort of weekly supplies back into a wholesale management system. And it’s been really well received.

VK: And a lot has happened since you started Beat the Q but can you just take us back to in your scrappy start up days. When did you decide to pay yourself?

AT: It’s a huge challenge. My wife would argue, I’m not paying myself still today. [Laughter] I think – I think it’s a really really difficult one and it goes to the comment I made before about trajectories. I think when people talk about start-up funding that the term that becomes really interesting to me is your runway. You’re always trying to extend your runway…

RS: What is runway?

AT: So the runway is basically how much capital you have left and what you can do with it and I think that’s a – that’s a really challenging decision, where you put yourself on the priority list in terms of using money that – that adds to that runway. I was bad at it. So I paid myself virtually nothing for three years. I still don’t pay myself enough but you know, the reality is that I could see traction in the business, I could see our equity growing in the business and you know, I’ve got a very strong belief in this being successful so it’s a – it’s an investment by me, it’s an investment by my wife. It’s a difficult discussion but yeah, it’s definitely an ongoing challenge.

RS: So hypothetical. When do you start paying yourself the, you know, the right level?

AT: You’ve got to take the pressure off. So you’ve got to do – pay yourself enough that you can survive. You’ve got to pay yourself enough so you don’t have creditors chasing you but you can’t have a plush existence if you’re genuinely in the trenches. You know, there’s many people who have different views on this but you know, when you’re in the trenches, you aren’t a capitalised business and you’re doing everything you can to get capitalised, then I think people like to see a little bit of pain on your face. They like to see that you’re massively invested in its success and you know for me, I pay myself a little bit throughout and I think that’s been the right strategy.

RS: And what’s your opinion about someone out there who wants to bootstrap? So keep their current job and then, you know, build something on the side?

AT: Yeah. I mean we hear – hear a lot about the minimum viable product. It’s a massive buzzword…

RS: That’s right.

AT: You hear a lot about the lean start-up. Both great references when it goes to this so I think you have to make conscious decisions about when you go and when you don’t. It’s a decision tree and you need to have a clear question that you need answered at every point to make that decision. So for me, I would want to prove up exactly what it is. I need to come up with a clear plan of what I need to prove before I leave my job.

RS: And was there something that gave you that conviction to leave your job?

AT: I don’t think so. I think to be honest, in – in my case, I saw a great opportunity, I was passionate about it and I jumped on it. So there was no burning desire to leave anything. I just decided it was the right time for me. So yeah.

VK: All thanks to Jack Johnson.

AT: All thanks to Jack.

VK: Has there been a pain point in the last four years where you’ve thought, this is too much? Or have I done the right thing? Or I’m going to get divorced if I don’t leave?

AT: Yeah. Look, I mean, full kudos to my wife who’s an incredibly patient and wonderfully supportive person. I mean, there’s been a number of times where I’ve questioned the pressure that it puts on your family to be an entrepreneur. We’ve got a little two year old daughter. You know, I remember when, I remember when she was born actually, she was born prematurely. My wife was quite crook and believe it or not, my wife was in hospital, my daughter was in special care nursery and my dog believe it or not was in hospital as well. So the whole family was in hospital and I remember on the way between two of those various hospitals, getting a call from a café owner just giving me a massively hard time about something completely inconsequential and I’d say that was one of my dark moments. But I think look, if you’re not questioning what you’re doing all the time, then you’re probably not pushing hard enough and yep, you have doubts, yep, you have tough times and yep you need to scramble to make it work but the reality is if there’s – if you believe strongly enough in what you’re doing, you’ll get through.

Interlude

VK: Well we’d love our listeners to get to know you a little bit better so we’ve got some quick fire questions for you. Who’s your favourite entrepreneur?

AT: My two favourite entrepreneurs are the before mentioned, Greg Wilkinson, the founder of Reckon and James Spenceley. The founder of Vocus Communications

RS: And other than coffee, what wakes you up in the morning?

AT: My two year old daughter. She’s gorgeous and she drives me every day.

VK: What do you do when something in your business isn’t working for you?

AT: Look, I consult, I seek a small number of high quality advisors and I ask them very specific questions about the problem at hand.

RS: And what three apps on your phone you just can’t live without?

AT: So naturally, Beat the Q is the one I use most.

VK: Of course.

AT: But I also love Air Tasker and LinkedIn. I also use Xero regularly for my expenses.

VK: Apple or android?

AT: Apple.

RS: What’s your favourite TV show?

AT: Favourite TV show recently is True Detective.

VK: Great show.

RS: Second season coming out too.

AT: But I still enjoy – all different task – cast too, I can’t wait.

RS: Vince Vaughan.

AT: Yeah. Amazing. But the other one also is the classic West Wing.

VK: Where’s your go to for news?

AT: Social media.

RS: And best piece of advice if you gave it to yourself when you first started out?

AT: I actually got this advice and I still think it was the best advice and it was from an obscure source. The advice was that in the start-up world, you get kicked in the guts ten times a day. And your success is almost a hundred percent reliant on your ability to jump up, dust yourself off and take a positive step forward.

VK: Sounds like a scene from Rocky VI. On that note, it’s time to wrap up. Thanks for joining us today Adam.

AT: Thanks very much.

RS: Thanks Adam.

AT: Cheers.

Interlude

VK: So they were some really interesting insights from Adam. What did you get out of that Rob?

RS: There’s a lot to take away. Some of the things that I thought were very pertinent was first off, there are no longer any second class customers and secondly, you just need to scramble. You’re in there asking questions every day and having that sense of urgency which I think a lot of people starting up businesses have but it’s a great reminder.

VK: Yeah. The sense of urgency is very important but it’s also important to – to make sure that you have time to be open to opportunity. I loved the fact that his business spawned a whole other business.

RS: Yeah. It’s incredible. I’m quite sure he doesn’t get any sleep but lucky he’s involved in the coffee game.

VK: I think also when you’re the founder of a business like that and a fast growing business, you need to be able to inspire your team and all the other stakeholders. You know, involved in your start-up, I think you have an interesting link for us Rob.

RS: I do. It’s Simon Sinek: How Great Leaders Inspire Action. In that, he talks a lot about the golden circle of questions. Why? How? What? Adam was talking a lot today about always asking questions of yourself so I think this is a good introduction to how you get that sense of purpose.

VK: Wonderful. And we put the link in the show notes.

RS: As always. We do have the small business guides. You’ll find a link in today’s show notes. This week, it’s all about how much do you pay yourself?

VK: Well that’s all for episode four. Be sure to join us next time on Xero In. I’m Valerie Khoo.